Families with low account balances and limited credit affected most,
underscoring previous research on role of liquidity in healthcare access

January 08, 2018 09:00 AM Eastern Standard Time

WASHINGTON--(BUSINESS WIRE)--Today the JPMorgan Chase Institute released a first-ever study showing
American families are deferring healthcare treatments until tax refunds
arrive in bank accounts—underscoring the role of liquidity in spurring
access to healthcare.

The report finds the overall level of healthcare spending is 60 percent
higher in the week after receiving a tax refund payment than in a
typical week over the 100 days before. In the week after receiving a tax
refund, out-of-pocket healthcare spending on debit cards increased by 83
percent, while there was no offsetting change to credit card
spending—suggesting the cash infusion provided by the tax refund was a
major determining factor driving changes in healthcare spending
behavior. Moreover, 62 percent of the additional healthcare spending
triggered by the tax refund was paid in person at healthcare providers.
This means that cash flow dynamics influenced not just when consumers paid
for healthcare but also when they received it.

The change in healthcare spending triggered by the arrival of a tax
refund was even more pronounced among families with a low cash buffer.
Account holders in the highest checking account balance quintile (more
than $3500) only increased healthcare spending 11 percent after the
arrival of a tax refund, while account holders in the lowest quintile
(less than $536) increased healthcare spending 220 percent after a tax
refund arrived—a spending reaction nearly 20 times larger in magnitude.

"We already knew that many families don’t have enough of a cash buffer
to cover the cost of a major medical emergency. Now we also see that a
significant number of Americans put off going to the doctor and other
routine health services until they actually have cash in their account,
even when they know that it is coming," said Diana Farrell,
President and CEO, JPMorgan Chase Institute. "In addition to being a
major personal finance issue, this link between healthcare and cash flow
could have significant consequences for public health. We need to better
understand the connection between financial health and physical health,
including evaluating the consequences of deferring care while waiting
for cash to arrive."

Cash flow dynamics, and specifically tax refunds, are a significant
driver of out-of-pocket spending for healthcare. Even when
consumers know with near-certainty the size and source of a major cash
infusion, they still wait until the cash infusion arrives before
spending.

The overall level of healthcare spending is 60 percent higher in the
week after receiving a tax refund payment than in a typical week over
the 100 days before. The response to the cash infusion tails off after
about 75 days.In the week after receiving a tax refund,
out-of-pocket healthcare spending on debit cards increased by 83
percent, and electronic payments increased by 56 percent. There was no
offsetting change to credit card spending.

Cash flow dynamics drive when consumers receive healthcare,
and not only when they pay for it. This is especially true for
dental treatment.

Consumers who spent more when they receive their tax refund spent
those funds disproportionately on in-person healthcare services that
were likely deferred from the period before the refund arrived.

Dentist and doctor visits accounted for more than half of the deferred
care that would have been received earlier, if the tax refund payment
had come earlier.

Dentists received 32 percent of the refund-triggered additional
spending, a disproportionate share. By contrast, during the period
prior to the tax refund payment, only 27 percent of in-person payments
to service providers went to dentists.

Cash flow dynamics have an outsize impact on healthcare decisions
for consumers with low liquidity or no limited access to credit.

The cash infusion from a tax refund triggered a significantly sharper
increase in healthcare spending among account holders who had lower
checking account balances or who did not have a credit card prior to
receiving their tax refund. We also observe that consumers who had
more liquidity or access to credit were less likely to delay their
healthcare spending until their tax refund arrived.

The JPMorgan
Chase Institute Healthcare Out-of-Pocket Spending Panel (JPMCI HOSP)
was first constructed in September 2017. The asset follows a sample
of 2.3 million de-identified regular Chase customers aged 18 to 64 from
January 2013 until December 2016. The Institute defined out-of-pocket
healthcare spending as any observed payments to healthcare providers and
drugstores, including co-payments, co-insurance, deductibles, and other
point-of-service medical, dental, or drug spending.

Finding 1: Consumers immediately increased their out-of-pocket
healthcare spending by 60 percent in the week after receiving a tax
refund payment. Spending remained elevated for about 75 days; during
this entire period of elevated spending, consumers spent a total of 20
percent more out of pocket on healthcare than over a comparable period
before the tax refund.

This increase is driven by two dynamics—larger healthcare
payments in a typical day, and more account holders making
healthcare payments in a typical day.

The typical spender spent 11.1 percent more in a typical day during
the period of elevated spending, compared with the pre-refund period.
This increase in the average payment was driven in large part by an
increase in the largest payment amounts (account holders spending $150
or more in a single day). The cash infusion generated by a tax refund
payment triggered additional spending on large healthcare ticket items
that consumers could have least afforded out of their pre-refund cash
flow.

The number of spenders on a typical day increased by about 7.5 percent.

Finding 2: In the week after receiving a tax refund, out-of-pocket
healthcare spending on debit cards increased by 83 percent, and
electronic payments increased by 56 percent. There was no offsetting
change to credit card spending. This suggests that the liquidity
provided by the tax refund enabled customers to pay for unmet
healthcare needs or unpaid healthcare bills.

Moreover, unmet needs for healthcare appear to be greater, in
aggregate, than other spending needs after the tax refund: non-health
spending on debit cards increased by 54 percent in the week after the
tax refund (compared to 83 percent for healthcare spending).

Finding 3: In-person payments to healthcare service providers
represented 62 percent of tax refund-triggered additional healthcare
spending. This indicates that the timing of a cash infusion affected
when consumers received healthcare, not just when they made a
healthcare payment.

Payments in person at service providers were 54 percent higher
during the seven days after account holders received their first tax
refund payment than a typical week prior to the refund.

Remote payments to service providers were elevated by 79
percent, but off a smaller base and for a shorter period of time than
in-person payments.

Payments to providers of stockable healthcare goods increased by only 22
percent.

Finding 4: The tax refund caused consumers to make visits to
dentist and doctor offices and pay outstanding hospital bills they had
likely deferred from the period prior to the refund payment.

Dentists received a disproportionate share of the refund-triggered
additional spending – 32 percent. By contrast, during the period prior
to the tax refund payment only 27 percent of in-person payments to
service providers went to dentists.

The refund-triggered additional spending was less likely to go to
doctors or hospitals, 23 percent and 6 percent respectively, compared
to 27 percent and 7 percent of spending during the pre-refund period
respectively.

The remaining 39 percent went towards other healthcare services,
including nursing service providers, ambulance service providers,
medical laboratories, opticians, optometrists, and chiropractors.

Hospitals received disproportionate share of refund-triggered remote
payments to service providers (31 percent, compared with 28 percent
during the pre-refund period).

Finding 5: Cash flow dynamics had less effect on the out-of-pocket
healthcare spending patterns of consumers who had higher balances in
their checking accounts or who had a credit card before the payment
arrived.

Among account holders whose average daily checking account balance was
less than $536 (the lowest quintile), weekday healthcare spending was
220 percent higher in the week after receiving the first tax refund
payment compared with a typical week prior to the refund payment.

For account holders with average daily balances over $3,577 (the
highest balance quintile), healthcare spending increased by only 11
percent with the cash infusion.

Weekday healthcare spending increased more sharply among those who did
not have a credit card (104 percent) than among those who did (48
percent).

The JPMorgan Chase Institute is a global think tank dedicated to
delivering data-rich analyses and expert insights for the public good.
Its aim is to help decision makers–policymakers, businesses, and
nonprofit leaders–appreciate the scale, granularity, diversity, and
interconnectedness of the global economic system and use better facts,
timely data, and thoughtful analysis to make smarter decisions to
advance global prosperity. Drawing on JPMorgan Chase & Co.’s unique
proprietary data, expertise, and market access, the Institute develops
analyses and insights on the inner workings of the global economy,
frames critical problems, and convenes stakeholders and leading
thinkers. For more information visit: JPMorganChaseInstitute.com